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Dividends in Overdrive

Ford Motor, widely acclaimed for surviving the Great Recession
sans aid from Uncle Sam, added an exclamation point to its run of
prosperity when it recently hoisted its quarterly dividend from 5
cents per share to 10 cents. That may seem like small change, but
to dividend hunters, it's a double. And to holders of Ford's 3.8
billion common shares, it's an additional $190 million in cash
disbursements every quarter.

Ford is on a roll. After 11 straight quarters of positive cash
flow, it has $35 billion in cash and marketable securities.
Receivables (such as payments that car buyers owe Ford's finance
arm) offset much of Ford's debt, leaving the company with $10
billion in net cash. The 10 cent dividend is just 25% of the 40
cents per share Ford earned in the fourth quarter. That's below the
average payout rate (dividends divided by earnings) of 30% for
blue-chip companies that distribute cash. Ford can surely afford to
raise its payout again in 2014 and beyond.

Many other companies are also boosting their dividends at a
feverish pace. That's good news for investors. Buying a package of
these dividend accelerators, as I call them, is a terrific
strategy. Watch the dividends grow, and in all likelihood you'll be
richly rewarded over time. Dividend accelerators crop up in every
sector, from retailing to technology. I studied some of these cases
to see whether they have enough in common to put you on the trail
of other potential accelerators. It turns out that there are at
least three varieties:

Cost-cutters. It's possible to fatten dividends by greatly
improving a business's profitability. Quest Diagnostics (symbol
DGX
, $58), a chain of medical labs, paid 10 cents a quarter in 2011,
raised its dividend to 17 cents last year and went to 30 cents in
2013 (share prices are as of January 31). Quest's mantra is to
deliver "meaningful" dividend growth, and, juiced by an ongoing
program that aims to chop annual expenses by $500 million (the
equivalent of $3.16 per share) in 2014, the company should be able
to do just that. Quest's goal hinges in part on whether tens of
millions of newly insured Americans will take enough tests to hike
the profit margin on each analysis. If so, Quest could easily
double its current dividend rate.

Crowd followers. In explaining why its dividend shot up from 6
cents twice a year in 2010 to 50 cents a quarter now, Agrium (
AGU
, $113) said that one reason was that it wants its shares to yield
as much as its fertilizer-industry rivals, such as Potash Corp. of
Saskatchewan (
POT
). Because Agrium's stock has been rising steadily, its current
yield is just 1.8%. But it won't stay that low, and your yield on
the current cost will sprout as the company boosts its
distribution.

A lot of cash, low payout ratio. The energy business in the U.S.
is booming, and Helmerich & Payne (
HP
, $64), which owns and operates drilling rigs, is a major
beneficiary. In the first quarter of 2013, H&P raised its
quarterly dividend 114%, from 7 cents to 15 cents per share. Even
so, H&P yields less than 1% and pays out just 10% of its
earnings. So it's hardly a stretch to predict that H&P will
increase its dividend significantly if it continues to prosper in
the drilling game.

Other accelerators include Equifax (
EFX
, $59, 1.2% yield), a provider of credit reports; KBR Inc. (
KBR
, $31, 1.0%), the global construction company; and clothes-maker
Ralph Lauren (
RL
, $166, 1.0%). I'm not immodest enough to think that I can divine
the next dividend dreamboats. But there are clues: great cash flow,
low debt, a growing business, bosses who talk about dividend growth
to analysts and stockholders, and a below-average current yield and
payout ratio. That combination offers more scope for dividend
growth than, say, a Kimberly-Clark (
KMB
), which yields 3.3% and already disburses 67% of its earnings.

Jeff Kosnett is a senior editor at Kiplinger's Personal
Finance.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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